Global markets this week are set to navigate through a mix of significant data releases and the looming risk of a Middle East conflict. Markets have largely bounced back from the unwinding of the Yen carry trade, with various international firms estimating that 60 to 75 percent of these trades have already been reversed.
Additionally, a former Bank of Japan official has stated that no further rate hikes are expected in Japan this year, offering relief to risk markets. The Yen continues to weaken against other currencies, providing further support to carry trade investors.
In the US, key economic indicators, including the Consumer Price Index (CPI) and Producer Price Index (PPI) for July, will be released this week, shaping expectations for the Federal Reserve's rate cut decisions on September 18.
On the domestic front, India's inflation data on August 12 is expected to reveal a sharp decline in CPI, while industrial production figures are anticipated to be lower. India could see some volatility from the after-effects of a report from Hindenburg.
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However, markets are likely to follow stronger global cues, with Asian markets opening higher today, though Japanese markets remain closed for a holiday, said market expert Ajay Bagga.
The major issues facing the markets remain, the unwinding of the Yen carry trade, the Israel- Iran conflict flaring up into a direct regional war and data points from the US economy pointing to whether there is a soft landing or a relatively harder landing coming up in the US .
Israel has warned of an imminent, coordinated attack from Iran and its regional proxies, including Hezbollah.
The scale and magnitude of such an attack could significantly impact market sentiment this week, particularly as the region braces for potential escalation, Bagga said, adding that this geopolitical risk is the major factor overshadowing the markets, with the threat of an Iran-Hezbollah action weighing heavily on investor sentiment.
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